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A Note on Loss Aversion and Futures Hedging

✍ Scribed by Donald Lien

Publisher
John Wiley and Sons
Year
2001
Tongue
English
Weight
103 KB
Volume
21
Category
Article
ISSN
0270-7314

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✦ Synopsis

Abstract

This note examines the effect of loss aversion on the futures trading behavior of a short hedger. Using a modified constant‐absolute‐risk‐aversion utility function, I show that loss aversion has no effect in an unbiased futures market. It has different, predictable impacts when the futures market is in backwardation or contango. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21: 681–692, 2001

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